Euro bond rises: German bond yields are set for a third consecutive weekly increase, signalling a shift in investors' expectations for rapid interest rate cuts.

The euro zone benchmark Germany's 10-year bond yield rose 4 basis points (bps) to 2.471 per cent, heading for a weekly increase of 7 basis points.

Investors are now anticipating around 90 basis points of interest rate cuts from the European Central Bank (ECB) this year, implying fewer than four 25 basis point reductions. This is a decrease from previous expectations of around 102 basis points at the start of the week and more than 150 basis points in February.

The rise in yields is attributed to stronger-than-expected economic data, particularly in the United States, and explicit statements from central bankers that interest rates will not be cut until mid-year.

Yields rise

Sean Kou, rates strategist at Societe Generale, noted that the increase in yields reflects a repricing of rate-cut expectations due to economies performing better than anticipated.

ECB data released on Friday showed that euro zone consumers' inflation expectations for the year ahead increased to 3.3 per cent, up from 3.2 per cent previously. Additionally, German business sentiment improved, despite challenges faced by Europe's largest economy.

The 2-year German bond yield, which is sensitive to ECB rate expectations, rose 4 basis points to 2.954 per cent, its highest level since late November.

Federal Reserve official Christopher Waller suggested delaying rate cuts for a few more months to assess whether a January uptick in inflation will subside.

The close relationship between American and eurozone inflation, as well as the significant impact of the US economy, often causes both bond markets to move in tandem. US yields also rose by around 3 to 4 basis points on Friday.

(with Reuters inputs)